Practical Financial Moves for the Second Half of the Year.

Practical Financial Moves for the Second Half of the Year.

The first half of the year is in the books. Here are Practical Financial Moves for the Second Half of the Year. As you may recall, at the beginning of the year, we gave you 3 Reasons to Skip the Financial New Years Resolutions This Year. Additionally, we are not there yet, but to prepare, here are the 6 Easy Ways to Navigate a Recession.

Review Your Withholding and Estimated Taxes

I suspect you do not want to think about it, but it was not that long ago that you filed your income tax return. We highlighted that “I Love Paying Income Taxes.” Said No One, Ever.

Sorry to interrupt your summer with this, but now it is time to start planning for your 2025 income tax return. Review last year’s income returns to see if you had a refund or balance due. Sorry, you do not need to review last year’s returns to see if you had a balance due.

You remember exactly the amount of the check you had to write.

If you had taxes due, a great way to address this going forward is to adjust your withholding. Do this by updating IRS Form W-4 with your employer. Alternatively, retirees taking distributions from your 401(k) plan and /or a Traditional IRA, you would update IRS Form W-4P with your custodian.

Additionally, another way to have withholding is to have Voluntary Federal Income Tax Withholding on your Social Security benefit. To have voluntary withholding here, complete IRS Form W-4V. Again, this is voluntary withholding. The State of Connecticut does not have the option to have voluntary state income tax withholding on your Social Security benefit.

Going forward, to avoid any Underpayment of Estimated Tax Penalty, if your Adjusted Gross Income (AGI) for a married couple filing a joint income tax return is $150,000, or less, you must have paid in 100% of the prior year tax. For single filers, the AGI is one-half this amount or $75,000.

If your AGI was more than $150,000 ($75,000 for single filers) one way to avoid any Underpayment of Estimated Tax Penalty is to have paid in 110% of the prior year tax. Another way to avoid the penalty is to pay in 90% of the current year tax. This approach can be challenging as you can only estimate the current year tax.

If you do not adjust your withholding, or are self-employed, you will need to pay quarterly estimated taxes. These are due on April 15, June 15, September 15, and January 15. Hopefully, your CPA gave you a schedule of these estimated taxes.

If you are going to pay quarterly estimated taxes or must pay estimated taxes if you are self-employed, do this online. This way, you know the taxes are paid and you get a receipt. Federal Estimated Tax Payments can be made online at IRS Direct Pay. Connecticut taxpayers can make their Connecticut Estimated Tax Payments at myconneCT.

If you are not going to do this online, it is highly recommended when you mail in your estimated tax payments, mail them in early and send them in Certified Mail Return Receipt Requested (Green Card). For a host of reasons, the U.S. Postal Service is not as dependable or timely as it once was. Having the Green Card will provide you evidence of proof of mailing and proof of delivery.

Maximize Your 401(k) plan Contributions

Mid-Year is an appropriate time to check in with your 401(k) plan. Do you get an employer match? If so, that is good. You will need to contribute enough to your 401(k) plan to get your employer match. This is an employee benefit that you need to take advantage of.

In 2025, for employees under age 50, the most they can put into their 401(k) plan is $23,500. Employees aged 50 and older can put in another $7,500 in a ‘catch-up contribution’, making their total $31,000.

Finally, employees that are age 60-63, their ‘catch-up contribution’ is $11,250, making their total $34,750. If you can, take advantage of these ‘catch-up contributions.’ Congress put these in for a reason. They knew that folks are behind in their retirement plan funding.

For Now, Hold off on Funding an IRA or Roth IRA

We are big proponents of both IRA’s and Roth IRA’s. If you are eligible, you need to take advantage of these tools.

However, the temporary caution flag we have up is just in the timing. If you are certain that you are eligible for either an IRA or Roth IRA, then, go ahead and fund it. If you might not be eligible due to higher income, hold off for now.

After working on your return during next tax season, your CPA will be able to tell you if you are eligible for an IRA or Roth IRA. Wait for the green light from him or her.

If you are eligible, you have until April 15, 2026, to fund your 2025 IRA or Roth IRA. Do not fund it now, only to have to potentially withdrawal it out later. It is far too much paperwork and hassle.

It is important to understand IRA vs. Roth IRA. What You Need to Know.

Maximize Your Health Savings Account (HSA)

To contribute to a Health Savings Account (HSA) you need to be eligible. To qualify you need to have a High Deductible Health Plan (HDHP). There are two requirements for this. Having a minimum deductible and a maximum out of pocket expenses (deductibles, co-payments, and other amounts, but not premiums.)

In 2025, families need a minimum deductible of $3,300 and maximum out of pocket expenses of $16,600. Individuals are one-half of these amounts, $1,650 and $8,300, respectively.

Additionally, to be eligible, you cannot be covered by your spouse’s health plan, Medicare or be claimed as a dependent on someone else’s tax return. Finally, you cannot participate in another health savings account like a Flexible Spending Account (FSA).

There is no earned income requirement to have an HSA like there is with a Traditional IRA or a Roth IRA. Earned income is from your wages as an employee or your income earned from self-employment.

Also, there is no limit on the amount of income you earn to have an HSA like there is with a Traditional IRA or Roth IRA. If you meet the requirements above, there is no limit on what you earn to be eligible. Here are 3 Great Reasons to Fund a Health Savings Account.

Take Your Required Minimum Distribution

Investors that have 401(k) plan accounts and Traditional IRAs (IRA) must begin withdrawing from these at a certain point. This amount is called a Required Minimum Distribution (RMD).

It was not that long ago that the requirement to start taking distributions from these accounts was age 70 1/2. Then it moved up to age 72, now it is age 73. Currently, the distribution must be made by April 1 following the year you turn age 73. Do not wait until then. If you do, you are required to take two distributions at age 74. Take your first distribution no later than age 73.

This will increase to age 75 in 2033. The reasons for the increase in age is simple. The IRS had been in arrears with updating the Life Expectancy Tables.

Please, take your RMD annually. If you do not, there is a 25% penalty on the required amount.

The good news is that this penalty is down from a 50% penalty.

The other good news is that you have two years to take the distribution and file IRS Form 5329, which will reduce the penalty to 10%.

The burden of taking the RMD is on the taxpayer. It is not on the financial advisor, custodian, or the CPA. While they will all advise you and encourage you, and the advisor can complete the paperwork, it is your responsibility.

To streamline this process and avoid any potential penalty, see if your custodian has RMD services that are automated. If so, once you set this up, they will issue you your RMD to you annually and you will not have to pay a penalty.

Keep in mind, there is no requirement to wait until you are age 73 to start taking funds out of your 401(k) plan or IRA. While there are some other limited exceptions, there is no 10% premature distribution penalty for withdrawals from a 401(k) plan or IRA when you turn 59 ½.

Therefore, it you are “Asset Strong and Income Light,” consider taking a distribution from your 401(k) and / or IRA. If your tax bracket is modest, it might make sense to take modest annual distributions out before you turn to age 73. Remember, the federal income tax brackets are progressive. The more you make, the more the tax rate goes up. Know what your tax bracket is. If there is more income you can earn and still stay in the same bracket, consider doing it.

This is because of the way the RMD is calculated. As mentioned above, it is based on the Life Expectancy Tables. However, it is also based on the prior December 31 Fair Market Value of the account. The first year it is about 4% of the Fair Market Value of the account and then it goes up annually from there.

Gift Appreciated Stock

As a former practicing CPA for decades, our experience is that folks are generous. If you are, consider gifting appreciated stock to your favorite charity.

Many people will simply write a check to their favorite charity or charities. That is fine. However, there is an income tax advantage to gifting appreciated stock to the charity.

Appreciated stock (or mutual funds) is stock that is worth more than your cost basis. Cost basis is what you paid for a stock or a fund. You can add to your cost basis any dividends or capital gain distributions that were reinvested.

By giving away the appreciated stock, you avoid selling the stock and having to pay capital gains tax on the sale.

Fund College Savings 529 Plan

College Saving 529 Plans offer tax benefits for saving for college. Here are 5 Easy Reasons to Fund a 529 College Savings Plan.

Finally, Have Fun

This is obvious. Which is, well, why we need to say it. We can wax on forever about various tools and techniques you can use with your financial planning. Hopefully, we have added value with our prior posts.

Having said that, you really need to have fun. As Don Henley sang in “The Last Worthless Evening,”

“But there are just so many summers, babe. And just so many springs.”

True that.

Action Item

If you need help with the Practical Financial Moves for the Second Half of the Year, call us at (860) 645-1515 or E-Mail Thomas.scanlon@raymondjames.com

This is original content written by Manchester, CT Financial Advisor, Thomas F. Scanlon, CFP®, CPA.

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that is accurate or complete, it is not a statement of all available data necessary for making an investment decision, it does not constitute a recommendation. Any opinions are those of Thomas F. Scanlon and not necessarily Raymond James.

Every investor’s situation is unique, and you should consider your investment goals, risk tolerance and time horizon before making any investment. Prior to making an investment decision, please consult with your financial advisor about your individual situation.

Change in tax laws or regulations may occur at any time and could substantially impact your situation. While familiar with the tax provisions of the issues presented herein, Raymond James Financial Advisors are not qualified to render advice on tax or legal matters. RMD’s are generally subject to federal income tax and may be subject to state taxes. You should discuss any tax or legal matters with the appropriate professional. Investing involves risk and investors may incur a profit or a loss. Links are being provided for informational purposes only. Raymond James is not affiliated with and does not endorse, authorize or sponsor any of the listed websites or their respective sponsors. Raymond James is not responsible for the content of any website or the collection or use of information regarding any website’s users and/or members.